While you were sleeping Friday night, House leaders unveiled their state budget proposal for the coming fiscal year. The nearly 500-page document, handed to House Finance Committee members, reporters and lobbyists (literally) hot off the press, impacts just about every part of state government. Here’s a rundown of some important provisions and how they will impact Rhode Islanders.

Winner: Families with pre-k age children

House leaders approved what appears to have been Governor Gina Raimondo’s top budget priority: expanding public pre-kindergarten throughout the state. The House proposal, which would add approximately 280 pre-kindergarten seats, represents a meaningful effort to reduce the financial burden of raising children in Rhode Island.

The state currently offers public pre-kindergarten, but seats are hard to come by: only one in ten four year olds is enrolled, and the program has a long waiting list. Governor Gina Raimondo proposed about $10 million in new spending to expand pre-kindergarten with the ultimate goal of reaching universal access. After marathon negotiations, WPRI’s Ted Nesi reports, House leaders approved about 80 percent of the governor’s requested spending.

Loser: College-age students

The House budget blocks Governor Raimondo’s proposal to expand Rhode Island Promise, the state’s last-dollar tuition-free college program. The governor had proposed expanding Promise to Rhode Island College and extending eligibility to adults.

At a committee hearing in April, Raimondo made the case for expansion: “For me, this isn’t only a moral imperative; it’s an economic imperative.” Others, such as Millennial Rhode Island’s Travis Escobar, have similarly highlighted the economic impact of student loan debt and exclusionary tuition costs. Escobar writes that “Rhode Island shoulders a burden of $4.5 billion in student loan debt, a figure that has more than doubled since 2008! … Those dollars should go toward home ownership, innovative businesses, shopping local and into our tax revenue instead of into the black hole of student loan providers.”

The Promise expansion was reportedly the subject of negotiations between the governor and House leadership. In the end, sticker shock seems to have stopped House leaders from embracing the expansion. The House budget also nixes the governor’s proposal to allow low-income college students to qualify for child care subsidies.

Winner: Pass-through entity owners

The budget proposal includes a provision, championed by House Majority Leader Joseph Shekarchi (Democrat, District 23, Warwick), to help owners of pass-through entities avoid federal income taxes. Shekarchi’s proposal makes it easier for owners of pass-throughs – S corps, LLCs, partnerships and sole proprietorships – to report their personal income as corporate income. In doing so, these taxpayers can bypass the newly-instituted federal cap on deductions for state and local taxes. Because the provision only reduces federal income tax liability, it is revenue-neutral for the state.

The workaround has been publicized as a tax break for struggling small businesses. In truth, it will largely benefit the very richest Rhode Islanders if enacted. According to a working paper from Treasury Department economists, pass-through income is “highly concentrated, with the top one percent earning 66.9 percent of total S-corporation income and 69.0 percent of total partnership income.” The Tax Policy Center similarly reports that “upper-income taxpayers receive the bulk of business income from pass-through enterprises.”

Loser: Low-wage workers

The House budget omits a number of provisions that would have raised the prospects of low-wage workers in Rhode Island. For one, House leaders decided against the governor’s proposal to raise the minimum wage from $10.50 to $11.10. Speaker Nicholas Mattiello (Democrat, District 15, Cranston) seemed open to the idea at the beginning of the session, writing that legislators “must continue to evaluate potentially raising the minimum wage” in light of increases in Connecticut and Massachusetts.

As I wrote earlier in the session, “incremental increases to the minimum wage are a proven way to enhance the prospects of low-wage workers and their families.” The Senate Labor Committee took the measure a step further last week and approved legislation to increase the minimum wage to $11.50. House leaders, however, seem to have been spooked by warnings from groups like the Greater Providence Chamber of Commerce and the National Federation of Independent Businesses.

The House budget also contains no increase to the earned income tax credit (EITC) for low-income working families despite federal tax law changes that will erode the growth of Rhode Island’s EITC over time. Governor Raimondo’s proposal to improve Rhode Island Works, the state’s cash assistance program for unemployed parents, did not make the cut either.

Winner: Jason Fane

The House budget echoes a Senate measure to strengthen state control over development in the I-195 district. The measure, which overrides Providence’s zoning authority in the district, is aimed at streamlining the approval of projects such as the Fane Organization’s 46-story Hope Point Tower. By including the measure in the budget, House leaders have stepped into a broader debate about the best use of the I-195 land.

Many state leaders believe that the district ought to be developed as a “signal to investors that we want their capital.” Others argue that the land ought to be used to redress past and ongoing injustices in Providence’s public policy. “Only by prioritizing the active inclusion of low-income residents into the new district, whether through mixed-income housing or otherwise,” writes Jacob Binder at Brown Political Review, “can Providence truly link together its long-separated neighborhoods.”

Loser: Recreational marijuana users and advocates

The House budget presses the brakes on growing momentum to legalize recreational marijuana. In several states, including Massachusetts, adults can now purchase marijuana at retail stores – and Rhode Island voters appear ready to follow suit. According to a 2018 poll from WPRI and Roger Williams University, voters favor legalizing recreational marijuana by nearly a 20 percentage point margin.

Governor Raimondo’s budget proposal included a plan to legalize, regulate and tax recreational marijuana. Legislative leaders, however, were not on board. “There’s been a feeling throughout the session that there was not the appetite to legalize,” Speaker Mattiello told reporters at the State House on Friday. The House budget does move forward with the governor’s plan to triple the number of medical marijuana dispensaries in the state.

Medical marijuana licensing fees, surreptitiously hiked last year at the request of the state’s existing compassion centers, are increased again in this year’s House budget. If the proposal is enacted, licensing costs will double to $500,000 per year. Skyrocketing licensing fees raise revenue for the state, but they also beg the question: is there a monopoly (or an oligopoly) in the Rhode Island marijuana market?

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Justin
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Justin

Regarding “Loser: College-age students”: This is a quote which gives context to my questions below. “We studied the effects of a student credit expansion on tuition costs using a difference-indifferences approach around changes in federal loan program maximums to undergraduate students in the academic years 2007-08 and 2008-09. Consistent with the prediction of the illustrative model, institutions that were most exposed to these program maximums ahead of the policy changes experienced disproportionate tuition increases. We estimate tuition effects of changes in institution-specific program maximums of about 60 cents on the dollar for subsidized loans and 15 cents on the dollar for unsubsidized loans.” (https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf). A new paper came out countering this, but only in certain masters business programs and medical schools. So, would additional funding from the RI government incentivize RI universities to increase tuition even more? Would it be better to address why institutions are raising tuitions by so… Read more »

Spencer
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Spencer

Good Photo, good story, good summary of budget.